Good afternoon, everyone. This is Elena Sanchez from EFG Hermes, and I would like to welcome you all to National Bank of Kuwait's third quarter 2026 results call. It is a pleasure to have with us in the call Mr. Isam Al-Sager, Vice- Chairman and Group CEO, Mr. Sujit Ronghe, Group CFO, and Mr. Amir Hanna, Group Chief Communications Officer. I would like to hand over the call now to Mr. Amir Hanna. Please go ahead.
Thank you, Elena, and good afternoon, everyone. Thank you for joining us for today's earnings call. Let me start the presentation with our usual disclaimer. Certain comments in this presentation may constitute forward-looking statements. These comments reflect the bank's expectations and are subject to risks and uncertainties that may cause actual results to differ materially and may adversely affect the outcome and financial effects of the plans described herein. The bank does not assume any obligation to update its views of such risks and uncertainties or to publicly announce the result of any revisions to the forward-looking statements made here. Please also refer to the full disclaimer in our presentation for today's call. Now back to the presentation. Our Vice- Chairman and Group CEO, Mr. Isam Al-Sager, will start the call by giving some opening remarks.
Mr. Sujit Ronghe, our Group CFO, will discuss the period's financials in more details. Following the presentation, there will be a Q&A session. Today's slides are already available on our website for your convenience. Now let me hand over the call to Mr. Isam for his opening remarks.
Thank you, Amir. Good afternoon, everyone. Thank you for joining us today for our earnings call for the third quarter of 2026. Looking back on quarter three, the regional conflict remains unresolved, with disruption to trade and energy flows, weighing on business sentiment and keeping uncertainty around global economic growth elevated. Across the GCC, strong sovereign balance sheet and financial buffers continued to support the region's resilience, while activity began to gradually recover during the quarter. In Kuwait, economic activity regained momentum following slower second quarter. Oil production has recovered substantially from its low point, although it remains below pre-conflict level, and the pace for here depends on export conditions. Non-oil activity proven more resilient, supported by progress on the development agenda and marked pickup to tendering projects across utilities, infrastructure, and energy sectors. The period also saw significant progress on the reform agenda.
The new government Sukuk law broadens sovereign financing options and supported the development of the local debt market, while amendment to Future Generations Fund law provides additional financing flexibility. These developments, together with Kuwait's strong financial positions, were viewed positively by the rating agencies, leading to the sovereign rating affirmation during the period. The mortgage financing law has been approved and published, and we wait the release of the bylaws soon. Overall, project awards activity continued over the period, with total awards reaching approximately KWD 3 billion during the first nine months of 2026. The quarter also attracted significant international investors into Kuwait's infrastructure sector. One we regard as a strong sign of confidence in Kuwait. With future projects at tender stage and awards expected over the coming period, the direction of the investment cycle is encouraging.
Moving on to our performance, NBK reported net profit of KWD 481.7 million during the first nine months of 2026, compared to KWD 467.4 million in the corresponding period of 2025. Net operating income grew by 3.8% year-on-year to KWD 1 billion, demonstrating the strength of our diversified business model and broad geographic footprint and supporting solid performance despite the challenging operation conditions. Our return remains strong, with return on average assets at 1.39%, while return on average equity stood at 13.9%. Strategically, we continued to advance our digital transformation agenda and innovation capabilities. During the quarter, we expanded fully digital journey across our core retail products, introducing Kuwait's first fully digital loan journey, fully digital account opening for children, and fully digital credit card application and issuance process throughout the NBK Mobile App.
Diversification remains central to the group, supported by our regional and international presence, our wealth management division, and our Islamic banking subsidiary, Boubyan Bank, during the quarter. We expanded our GCC presence throughout new branch in Qatar Financial Center, deepening relationship in a market we have served for many years. We also continued to integrate sustainability across our business and operations, achieving more than 60% of our $10 billion sustainable finance targets for 2030 as of September 2026, demonstrating strong execution against our ESG strategy and commitment to long-term sustainable growth. Looking ahead, we remain well-positioned to build on this performance and to reinforce our leadership at home. Our capital and liquidity position give us a capacity to lend as actively recovers, while our trusted relationship across the public and private sector continues to place us at the front end of Kuwait's investment, infrastructure, and economic transformation plan.
With that, I will conclude my comments and leave you with my colleague, Sujit Ronghe, our Group CFO, to cover our quarterly and nine months results in more details. Please go ahead, Sujit.
Thank you, Mr. Isam. Hello, everyone, and welcome. I'm very pleased for the opportunity to discuss with you NBK's financial results for nine months of 2026. NBK has announced a group net profit of KWD 481.7 million, a year-on-year increase of 3.1%. Before going on to details of our financial results, a few words regarding the overall operating environment. Significant optimism and expectations of strong business growth in Kuwait and the regional network diminished due to sudden increase in geopolitical tensions since end of February 2026. In spite of an unstable operating environment and increased macroeconomics uncertainty, NBK Group has demonstrated operational and financial strength, benefiting from its well-diversified business model, resilience, and adaptability. Now turning to key takeaways of financial results for nine months 2026. As shown at the top of this slide, net profit at KWD 481.7 million reflects a year-on-year increase of KWD 14.3 million, that is 3.1%.
Third quarter 2026 net profit at KWD 156.9 million was similarly 3.1% ahead of 3Q 2025, driven by stable operating performance and relatively lower net provisions and impairment losses. At KWD 625.5 million, the nine months 2026 operating surplus remains solid and increased year-on-year by 3.5%, benefiting from growth in business volumes. Net operating income at KWD 1 billion exceeded the previous year by KWD 36.7 million, that is 3.8%, with strong contribution from non-interest income sources and, to a lesser extent, by net interest income and net income from Islamic financing. The operating income mix shows a continued healthy mix with 25% contributed by non-interest income sources. Similarly, the pie chart at bottom right reflects well-diversified net profit contributions by key business lines. You will note that international and Islamic banking, our two key pillars of diversification, together contribute 39% of group profit.
I will go into the main drivers behind movements in income, margins, and costs shortly. Moving to the next slide, we will now look at net interest income and drivers behind its performance. Net interest income and net income from Islamic financing at KWD 754.3 million, as shown in the chart at top left, increased by KWD 5.4 million compared to 9M 2025. Current year's net interest income benefited from 8.6% year-on-year growth in average interest earning assets, mainly loans, across the group. However, relatively lower benchmark interest rates, mix of asset growth, and higher funding spreads in recent months have affected the net interest income and nine-month 2026 NIM unfavorably. Continued issuance of KD-denominated Kuwait Government Treasury bonds has progressively increased the proportion of interest-earning assets with CBK, positively affecting net interest income and NIM to some extent.
We hope debt issuances will continue, allowing the bank to deploy liquidity into better-yielding CBK assets. We see in the top right chart that average NIM for nine months 2026 dropped to 2.28%, driven by a decrease in yield compared to the funding cost. Group yield and funding cost for the current nine months were 5.31% and 3.41% respectively. Third quarter NIM at 2.26% adversely affected by higher funding costs during the quarter. At the bottom left of this slide, we can see drivers behind the 17 basis points year-on-year decrease in NIM to 2.28% in nine months 2026. Loans and other interest-earning assets affected by lower interest rates and less favorable asset mix contributed to a net decrease of 30 basis points and 9 basis points to the NIM respectively. Lower funding costs positively affected the NIM by 22 basis points.
The chart at the bottom right reflects that non-interest income at KWD 251.4 million was KWD 31.3 million, that is 14.2% higher than the comparable period in 2025. Fee income was strong at KWD 181.6 million, that is +11.9% year-on-year, reflecting robust contributions across different lines of business and geographies. FX contributed KWD 14.7 million, aided by favorable currency movements and higher transaction volumes. Other non-interest income sources, mainly investment income, contributed KWD 29.1 million, largely benefiting from improved valuations. Moving to the next slide. Turning now to the top left of this slide. Total operating expenses for 9M 2026 at KWD 380.3 million were 4.3% higher than last year. Cost growth is well controlled given the current operating environment, while the group continues to invest in key business initiatives, digital technologies to optimize resources and improve operational efficiency while offering best-in-class customer service. Nine months 2026 cost-to-income ratio was 37.8%, similar to 37.6% one year ago.
Moving on to the provisions and impairments profile at the top right of the slide. Total credit provisions and impairment losses for nine months 2026 amounted to KWD 24 million, an increase of KWD 12.1 million over nine months 2025. KWD 32.3 million of the current period charge was for provisions for credit facilities, of which KWD 22.9 million was towards general provisions. The group has continued to take provisions in ordinary course of business for retail and corporate customers in Kuwait and overseas locations. In nine months 2025, specific provisions was a net release of KWD 19.1 million due to significant recoveries of amounts provided towards credit losses during prior years. Specific provisions for nine months 2026 at KWD 9.4 million also included a similar benefit, but to a much lesser extent compared to the previous year.
Nine months 2026 cost of risk was 15 basis points due to recovery of fully provided debts, as mentioned earlier. ECL on non-credit facilities for nine months 2026 was a net release of KWD 10.5 million, mainly due to improvements in macroeconomic inputs, benefit of which was held back in first quarter 2026, reflecting the conservative position taken by the bank given heightened uncertainty caused by sudden onset of the regional conflict, which has moderated since then. The group remains committed to its conservative approach in managing credit exposures. I would now like to discuss expected credit losses, ECL, on credit facilities as per IFRS 9. You would note that stage-wise ECL composition has remained stable during the year. As we know, the amount of provision for credit facilities in the balance sheet is based on the higher of IFRS 9 ECL and that as per CBK rules.
It is important that CBK guidelines for calculating ECL on credit facilities as per IFRS 9 are on a more conservative basis compared to the original standard. The key chart on this slide at the bottom reflects that the bank holds credit provisions of KWD 940 million as per CBK rules against an ECL requirement of KWD 713 million. Balance sheet provision as per CBK rules thus exceeds ECL requirement by KWD 227 million, providing an ample cushion for the group to withstand any possible adverse effect of the prevailing situation. Now moving to the next slide. Here, we will look at some of the movements in key balance sheet items. As shown at the chart at top left, group total assets reached KWD 46.9 billion as of September 2026, an increase of 4.5% over September 2025.
Group loans and advances at KWD 28.2 billion registered a year-on-year growth of KWD 2.1 billion, that is 8.2% and 5.1% during the current nine months, negatively affected by geographical, political developments in the region since end of February. The overall balance sheet composition has remained largely stable during the year. NBK's total asset composition is well-diversified between Kuwait and international, and conventional and Islamic banking. Similarly, the chart for loan exposure by sector reflects a well-diversified portfolio with personal loans at 28% as the largest segment. A significantly high portion of personal loans are extended to a large number of Kuwaiti individuals, predominantly employed with the government, backed by salary, and with low default rates. Customer deposits, that is non-bank and non-FI deposits, at KWD 27.9 billion comprise a healthy 67% of total liabilities.
Customer deposits reflect a year-on-year growth of 13.5% and were largely stable during the current year. At KWD 4.8 billion, deposits from other non-bank FI comprise 12% of total liabilities. The Group continues to benefit from its strong base of core franchise retail deposits. CASA deposit levels remained stable during the nine months of 2026, with volumes exceeding that of September 2025 and December 2025. The stability of NBK's funding base during the recent turbulent period reflects confidence of customers resulting from deep, long-standing relationships, a solid brand, and strong credit ratings. In response to the ongoing crisis, CBK implemented various measures in support of the Kuwaiti banking sector, detailed in Note 15 of September 2026 financial statements. NBK Group continues to maintain healthy levels of Basel III ratios with LCR at 163% and NSFR at 107%, exceeding original minimum requirements. Moving to the next slide.
We will now look at impact nine-month financial results had on certain financial metrics. The return on average equity for the current nine-month period was 13.9%, and return on average assets stood at 1.39%. Nine months 2026 cost-to-income ratio at 37.8% was similar to 37.6% one year ago. At 15.9%, total capital adequacy ratio remains strong and stable with CET1 and Tier 1 ratios at 12.8% and 13.8% respectively. Kindly note that interim profit is not included in regulatory capital. The bank called back and redeemed $700 million AT1 securities in August 2026. During 1Q 2026, CBK reduced capital conservation buffer included in CET1 by 1%, thereby lowering the Group's minimum total CAR to 14%. NBK's capital adequacy ratios continue to be healthy and in excess of the original minimum requirement. The Group's balance sheet remains strong with stable credit quality.
NBK's asset quality was stable with a low NPL of 1.29%. Loan loss coverage ratio is 236%, reflecting conservative provisioning policy of the Group. NBK's capital base, along with the ability to generate healthy operating profits, provides a strong credit loss absorption capacity. Now to the final slide of this section. In 9M 2026, NBK demonstrated operational resilience with a sound bottom-line profit, a healthy balance sheet, stable liquidity, and a strong capital base during the challenging period. Although hostilities from regional conflict appeared to somewhat have moderated since second quarter 2026, recent developments have increased uncertainty affecting the time required for normalcy and business growth potential. Going forward, we remain cautiously optimistic that overall operating environment, although challenging, would stabilize during coming quarters. Now turning to the guidance for the year ahead.
As regards loan growth, while we continue to monitor the currently volatile situation and resulting uncertainty, our guidance for 2026 loan growth continues to be in the mid-to-high- single-digit range. Turning to the NIM, you would have noted that NIM has declined since third quarter of 2025. We expect the full- year 2026 NIM to remain similarly under pressure compared to 2025. Coming to operating expenses, the nine-month year-on-year cost growth was 4.3%. While cost growth is typically expected to be in mid-to high- single-digit range, we expect the same for 2026 to be more towards the mid-single- digit and the cost-to-income ratio to be below 40%. Coming to the cost of risk, the currently evolving geopolitical scenario makes it difficult to provide a specific guidance on cost of risk.
The overall health of our credit portfolio remains strong, and we expect that nine-month 2026 recoveries will benefit the full-year provision charge. Hence, while the normalized cost of risk remains closer to 40 basis points, reported cost of risk for 2026 will be materially lower. It would not be prudent to give a specific guidance on earnings or capital adequacy in the current environment. We are hopeful of maintaining capital adequacy ratios in line with our internal targets above the regulatory minimum. That ends my presentation. Thank you for your time. Back to Amir.
Thank you, Sujit. Thank you, Mr. Isam. We pause for 10 seconds to gather question topics. We will be back to address them all. Okay. I got some messages in the direct messaging, so I will start with these. But please, if you want to put additional questions, put them whereby everyone can see them. First question is on the fee income. What is the reason behind the very strong growth in fee and commission income?
Yeah. The fees and commission income growth at 11.9% has been very strong and fee remains a strong contributor to the top line, contributed largely by AUM lending and cards income. During the third quarter also, we have seen the similar trend in fee income with growth coming from AUM and card business, which was impacted in the earlier part of the year due to travel limitations.
Okay. Second question on expenses. How are you able to control the staff expenses at the same level for the past six quarters?
Yeah. The staff expenses and other expenses in general are dependent on the level of activity of the bank and the wider group. Since certain activities had to be curtailed, especially during the last nine months, we are seeing that some kind of expenses could be saved, resulting in cost efficiencies for the group.
On deposits, which geographies contribute to deposit growth and loan growth in Q3?
The loan growth during the nine months have mainly come from Kuwait with a lower contribution from the overseas business, because you would appreciate that the regional situation was not conducive for a very strong loan growth. Although we did see some specific loan transactions take place in a mix of regional and international locations in addition to Kuwait.
What is driving sequentially growth stable margin in Q3 despite cost of funding pressure?
The cost of funding pressures that have impacted the net interest income and the NIM are more seen during the third quarter, and that is reflected in the NIM for third quarter, which ended at 2.26% compared to the 2.28% of the second quarter. Going forward, we see this being a pressure point for the NIM in the coming quarters.
Has the government indicated how many housing units or land plots will be allocated to nationals eligible for government housing, and over what timeline? In your view, what is a reasonable estimate of annual government housing supply? Mr Isam.
Well, this is a long question that needs to be answered by more details. I can tell you that probably you know that the number of outstanding applications for the housing authority reached more than 108,000 as of June 2026. Additionally, the authorities get new housing applications that can sometimes reach close to 10,000 annually. Currently, there is generally a shortage in housing units that are ready for distribution to meet the new demand and to clear the backlog. There is no formal indication of the units or the land plots to be allocated annually. But the government is progressing plan for the three new residential cities that is already working on with an indication capacity of around 170 housing units. Future allocations will depend on the resumption of this and distribution infrastructure completion and the government implementation schedule.
We expect lending activity under the newly approved mortgage financing law to gradually take off while we expect the real potential down the road when more units are available for distribution. In the meantime, the outstanding scope of the mortgage financing law, there will be some pickup in the lending activity as more work will be directed toward the infrastructure and the development of these cities.
Back to the financials. Could you remind us about the share of USD-denominated assets liabilities in your balance sheet? How will the rate hike margin trend into Q4 of the group?
If you look at the foreign currency component of our total assets and total funding, the same is in the range of 55%-60% on both sides.
Okay. Could you provide greater clarity on sustainability of the strong fee income recorded in third quarter? What were the key drivers and which geographies contributed most? I think we answered the second part.
Yeah. Specifically talking about the fee income for the third quarter, the two drivers, main for third quarter fee income increase compared to the previous quarter and the previous year, were AUM and card-related income. You could note that the card income benefited from increased flights and airport operations during the summer travel season, which was beneficial for the bank.
What are the key drivers and which geographies contributed the most?
As I mentioned, the key drivers were the AUM and cards income and the income was very well distributed across Kuwait and international locations.
Okay. How do we model Zakat and income tax rate?
Now there is no Zakat and NLST because the bank is required to pay the DMTT, which is a 15% tax based on Pillar Two tax rules. So that rate is 15% since the last year. In addition, the bank also pays 1% contribution to Kuwait Foundation for the Advancement of Sciences. So that makes the baseline tax rate to be around 16%. Tax in the current year was lower. The effective tax rate was around 14% because the bank benefited from release of provisions, because of some assessments, tax assessments were completed in favor of the bank, and such provisions were not required.
How is domestic borrowing evolving? Which sectors are driving demand?
Domestic borrowing is a tale of two different customer categories. Retail demand or demand for retail loans remains very subdued. However, we are seeing a pickup in demand from corporates. We have seen a good demand from oil sector and other primary sectors as well. Overall, corporate demand is contributing more to the loan growth compared to the consumer demand in Kuwait.
Risk-weighted assets have grown only 0.6% year-to-date compared to a loan growth of 5%. Has this loan growth been driven mainly by government-related entities?
Yes. Although loans have increased by 5.1% during the year, part of the growth was to obligors that carry a lower risk weight. Net RWA growth during the year also reflects a drop of KWD 1.4 billion in interbank placements.
Okay. What is the percent of CASA of the deposits in December 2025 and September 2026?
Yeah. CASA deposits ratio has remained very stable during the year, and it is in low 30s. However, the CASA deposit amounts, as at the end of September 2026, are ahead of what we were in September 2025 and December 2025.
Okay. Question on deposits. Is the 6% deposit growth mainly coming from Kuwait or overseas?
The deposit growth is a mix of Kuwait and overseas, but Kuwait is a larger component of the growth.
Okay. On the issuances and market practice to date has been banks in Kuwait have been calling the perpetual bonds on the first call date, on the first day of the call notice period. Should this thinking apply to Tier 2 bonds too by and large, or are the Tier 2s different in terms of how Kuwait banks and local investors view them?
From NBK's point of view, the bank has historically called both Tier 1 and Tier 2 bonds at the first call date while trying to be investor-friendly in its actions. The bank typically intends to continue with that position. Of course, the final decision will be made closer to the date of the event.
Okay. Just another question. Following the repayment of one of your AT1 instruments, do you have a timeline for issuing a new AT1 capital?
The bank will decide on capital issuances depending on the evolving geopolitical situation, stability of markets, and resulting growth opportunities.
These are all the questions we have. Thank you all for joining us on a late Thursday afternoon. Elena, back to you.
Thank you, Amir. I would like to thank the management team of National Bank of Kuwait for the presentation and the Q&A. Also thank you to all the participants that joined the call today.
Thank you.
Thank you.